Deepening its trade battle with the USA and sending financial markets spinning, China announced tariff hikes Monday on $60 billion of American goods in retaliation for President Donald Trump's latest penalties on Chinese products. That extends Chinese duty increases to $110 billion of imports from the United States.
"It's clear that there is a lot of nervousness around the US-China trade negotiations and concern that it's really deteriorating pretty significantly, and that's impacting all areas of markets", said Kristina Hooper, chief global market strategist at Invesco in NY. China has the resolution, courage, and confidence to rise to all sorts of challenges, they said.
"I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win - in which case they would continue to rip-off the US for $500 Billion a year", he tweeted. "If there was a situation where there wasn't some type of trade deal, you would see markets much worse, and it would be across the board".
White House economic adviser Larry Kudlow acknowledged Sunday that US consumers and businesses do pay the tariffs. Kudlow undercut that in an interview on "Fox News Sunday".
China had vowed "necessary countermeasures" on Friday against Trump's escalation. Anyone counting on the White House to rush to the aid of share prices after the market swoon on Monday is likely to be disappointed.
Within minutes of opening, the Dow Jones Industrial Average was down more than 460 points, or 1.8 percent, while the broad-based S&P 500 also fell 1.8 percent and the Nasdaq shed 2.3 percent. A 20% penalty applies to 1,078 items, 10% to 974 items and 5% to 662 items.
".There will be nobody left in China to do business with".
Shares retreated in Asia on Monday after trade talks between the US and China wrapped up Friday without an agreement.
The increases already in place have disrupted trade in goods from soybeans to medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.
They added that the effects of the tariffs had spilled over noticeably to the prices charged by US producers competing with goods affected by the levies. Growth in the world's second-largest economy held steady at 6.4% over a year earlier in January-March, supported by higher government spending and bank lending.
The latest tensions "raise fresh doubts about this recovery path", said Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai in a report. That would pull annual growth below 6%, raising the risk of politically unsafe job losses. The yield on the 10-year Treasury fell to 2.39% from 2.45% late Friday.
Trump on Monday, also said he will meet Putin at the G20 summit in Osaka, Japan. The Russell 2000, which is comprised of smaller companies that primarily sell into the US market, fell 3.2 percent. But he said there were no "definite plans".
"Investors finally woke up to the fact this may ultimately go on a lot longer and be a lot nastier than people had thought", Mr. Naroff said. "It is no big deal".
Kudlow also argued that Trump's trade policies were "a risk we should and can take without damaging our economy in any appreciable way". The U.S. and other trading partners say such efforts violate Beijing's free-trade commitments.
Beijing's top trade negotiator, Liu He, likewise said Friday the next round would start in the Chinese capital at an unspecified date.